It’s going to be interesting times in 2018 in divorce-land. The new tax law makes significant changes with the ability to deduct alimony payments. Alimony is also called spousal support or maintenance, and on the horizon, you will not be able to deduct those support payments from your income at tax time. Prior to President Trump signing the new tax bill into law, the payors of alimony (usually men) were able to deduct alimony payments on their tax return. So, if a guy was paying $1,000 per month in alimony, after his tax deduction, it meant he really was only paying about $750.00. Women under the old law took some of the tax hit, because they would have to claim alimony payments as income.
The new tax law buries this long held deduction my eliminating the deduction all together. But there’s a light at the end of this dark tunnel – you can be “grandfathered” into the old law and keep the alimony deduction. The new law allows anyone that’s divorced by the end of 2018 to keep the deduction. That’s right!
So, if you’re paying alimony right now, you are off the hook and you can keep your deduction. Similarly, if you get divorced in 2018, you too can keep the alimony deduction. The deduction isn’t minimal in most cases, and could mean a $10,000 or more swing for both the payor and the recipient of alimony, depending on the support amount.
Another problem is that divorce attorneys know that divorces take time (4-6 months in most cases), so now there’s going to be a dash of men wanting to file for a divorce to beat the year-end deadline. Guys that want the deduction will have to file early in the year to make sure the divorce is complete by the end of the year. Smart women that don’t want to claim alimony as income (who can blame them?) will then instruct their lawyers to drag out the case so that it gets stalled out into 2019. Given that men generally don’t file for divorce, that general attitude may change in 2018 because there’s a monetary gain to file sooner, rather than later. That was never the case before.
Also, there’s going to be a frenzy in the 4th quarter of 2018 of guys that want to file and willing to do anything to get their divorce done in a few months (or a few weeks). Those guys rushing to a lawyer’s office in November or December of 2018 will likely be out of luck and out of time. A good divorce lawyer will not only advise a client to file now (as opposed to later), but I would hope lawyers will revise their settlement templates to allow for future modifications of support amounts when, and if, the tax code changes again (which is likely to happen given the political atmosphere).
If you have a support or alimony question, call me or email me, and I would be happy to help you.
All my best,
Paul D. Nordini
Phone: (480) 527-9000